SEC Blunder Wipes Former Chair Gensler’s Texts from Key Crypto Period

The SEC’s Office of Inspector General (OIG) released a report revealing that nearly a year’s worth of Gensler’s texts were permanently lost due to “avoidable errors” by the regulator’s IT ￰0￱ period includes major events like the FTX collapse, the Grayscale Bitcoin ETF lawsuit, and other major crypto enforcement ￰1￱ Crypto and White House Matters In a Wednesday report, the OIG revealed that in August 2023, the SEC’s IT department mistakenly wiped Chair Gary Gensler’s government phone after wrongly marking it as inactive, resulting in the loss of stored text messages and operating system ￰2￱ investigation also found that the department had not kept important log data, leaving both the agency and its contractors unable to explain why Gensler’s phone stopped connecting to the SEC’s system and triggered the ￰3￱ absence of backups, weak procedures, and failure to follow record-keeping rules for senior officials made the problem worse and limited the regulator’s ￰4￱ OIG determined that some of the recovered texts touched on sensitive SEC matters, including actions against crypto platforms and their founders, settlement talks with major financial institutions, and high-level exchanges with the White ￰5￱ Geraci, president of NovaDius Wealth Management, called the situation “serious,” pointing out that the erased messages dated back to a key period in crypto, covering events from the FTX collapse to the Grayscale spot Bitcoin ETF ￰6￱ examined about 1,500 texts obtained from colleagues and other ￰7￱ found that most met the definition of federal records, with around 38% of the conversations “mission related” and directly involving senior staff and commissioners, and core SEC ￰8￱ included a May 2023 discussion with the Enforcement Division Director about filing an action against certain crypto trading platforms, a June exchange with a Commissioner over a proposed settlement with a global financial firm, and a July conversation about an upcoming White House ￰9￱ Slammed for Lost Gensler Texts Around the same time that the former chair’s messages were permanently erased due to an internal device wipe, the agency was aggressively enforcing record-keeping violations across Wall ￰10￱ investment banks and financial institutions, including JPMorgan, Goldman Sachs, and Citigroup, were charged with failing to preserve communications on unauthorized messaging apps like WhatsApp and Signal, in violation of the 1934 Securities Exchange ￰11￱ Chief Legal Officer Paul Grewal pointed out the irony, noting that after years of lecturing from the financial watchdog’s leadership about data preservation and compliance, the agency had failed to preserve critical communications during a pivotal period in crypto ￰12￱ also suggested that this wasn’t an “oops” moment but rather a deliberate destruction of evidence relevant to pending ￰13￱ Inspector General has warned that the missing records may affect the SEC’s ability to respond to certain Freedom of Information Act requests.

Meanwhile, following the events, the financial watchdog has disabled texting on most agency devices, alerted the National Archives about the lost information, launched Capstone records training for senior officials, and upgraded backup systems.